Yesterday was an eventful day for the former Blue Ridge Mountain Resources (nee Magnum Hunter Resources) and Eclipse Resources. We’ve been telling you since last August that the two companies are merging, with Blue Ridge Mountain essentially buying out Eclipse. The deal is done as of yesterday and there is A LOT of news to share–including a name change for the newly combined entity.
We maintain it was Blue Ridge Mountain Resources that did the buying, although technically it is a merger, because most of Eclipse’s top management, including CEO Ben Hulbert, are now gone (see Eclipse’s Top Brass Not Sticking Around After Blue Ridge Merger). Perhaps a better way to think about it is that the money people (investors) forced the two companies to combine and restructure. That’s probably a more accurate way to think about it.
Eclipse has drilled a number of record-breaking long laterals in the Ohio Utica Shale, one that reached 19,300 feet long (see Great Scott! Eclipse Drills New Longest Lateral in World – in Utica). Eclipse’s problem is that they ran out of money, a while ago.
Blue Ridge Mountain Resources used to be Magnum Hunter Resources. Magnum Hunter filed for bankruptcy in December 2015, emerging from bankruptcy in May 2016 minus CEO Gary Evans (see Magnum Hunter Emerges from Bankruptcy with CEO Gary Evans Gone). Looking to shed the image of the past, the company renamed itself as Blue Ridge in January 2017 (see Magnum Hunter Changes Its Name, Leaves the Bankrupt Past Behind).
Blue Ridge, headquartered in Texas, has 99,000 acres of leases (mostly undeveloped) in the Marcellus and Utica Shale plays. Eclipse, on the other hand, is headquartered in State College, PA and has 128,000 acres–drilling mainly in the Ohio Utica. There’s no announcement about where the new HQ will be located, but the dateline from the press releases issued yesterday indicates Texas.
Immediately following yesterday’s merger, the new company called Montage Resources, using Eclipse’s stock as its own, effected a previously announced 15-to-1 reverse stock split, a move meant to prevent the stock’s delisting (see NYSE Threatens Eclipse Resources with Stock Delisting). By combining 15 shares of stock into one, you automatically boost the value of each share. Theoretically if you had 15 shares worth $0.75 each, combined they would be worth $11.25. It doesn’t work that way exactly, but you get the idea.
First up from yesterday is the announcement that the merger is done, the former CEO from Blue Ridge is the new CEO of the merged company, and the new entity has changed its name:
Eclipse Resources Corporation (NYSE:ECR) (the “Company” or “Eclipse Resources”) and Blue Ridge Mountain Resources, Inc. (OTCPK:BRMR) (“Blue Ridge”) today are pleased to announce they have completed the transaction to combine the two companies under the definitive merger agreement, which was previously approved by the boards of directors and stockholders of each company. The Company is also announcing that it has entered into an amended and restated credit agreement to expand its borrowing base from $225 million to $375 million and extended the maturity date to 2024. In conjunction with the closing, the Company changed its name to Montage Resources Corporation and effected the previously announced 15-to-1 reverse stock split of its common stock. The Company’s common stock will begin trading on the New York Stock Exchange under the new symbol “MR” on March 1, 2019, giving effect to the reverse stock split.
As previously disclosed, Blue Ridge stockholders will receive consideration consisting of 4.4259 shares of Eclipse Resources common stock for each share of Blue Ridge common stock before adjustment for the reverse stock split, or 0.29506 shares of Eclipse Resources common stock for each share of Blue Ridge common stock after adjustment for the reverse stock split.
John Reinhart, President and Chief Executive Officer of Montage Resources, commented, “I am pleased to announce the closing of this transaction that leverages the scale, operational excellence and high-quality, contiguous assets of both organizations. The prolific Utica and Marcellus acreage position, when combined with Montage Resources’ operational expertise, balanced midstream and downstream portfolio, and financial positioning, will facilitate management’s focus on shareholder value through the execution of a development plan prioritizing prudent growth, capital efficiency, and corporate cash flow generation. This is a transformational year for Montage Resources and we are excited to close the transaction and continue working toward creating value in 2019 and beyond.”
About Montage Resources
Montage Resources is an exploration and production company with approximately 227,000 net effective undeveloped acres currently focused on the Utica and Marcellus Shales of southeast Ohio, West Virginia and North Central Pennsylvania. (1)
A second announcement was issued yesterday, with 2019 operational and financial “guidance” (company’s best guess as to what will happen this year). In this second announcement we learn the new Montage company will release a 2018 update for Eclipse on March 12.
Montage plans to spend $375-$400 million in 2019. They don’t mention how many wells they will drill with that money but they do say they will use two rigs. The company plans to produce around 1/2 billion cubic feet (Bcf) per day for the year. Perhaps most importantly, the new company plans to retreat from drilling super-long laterals (laterals more than 15,000 feet long). Instead, they plan to drill wells with laterals averaging 11,700 feet. Must be bigger isn’t always better.
Montage Resources Corporation (NYSE:MR) (the “Company” or “Montage”) (formerly known as Eclipse Resources Corporation, “Eclipse Resources”) is pleased to announce its initial 2019 financial and operating guidance, schedule its fourth quarter and full year 2018 earnings release and conference call, and provide information regarding its upcoming 2019 Analyst Day.
The 2019 financial and operating guidance highlights include:
- 2019 estimated net capital expenditures of between $375 million to $400 million allocated almost entirely to revenue-generating drilling and completions activity and focused on low risk, highly deliverable locations that the Company believes maximize return on invested capital
- 2019 estimated net daily production sales volumes of between 500 to 525 million cubic feet equivalent per day (“MMcfe”); when adjusting the 2019 daily production sales volumes guidance to a full 12 month pro forma basis, this equates to approximately 16% production growth over 2018 results
- Expected achievement of cash flow neutrality by the end of 2019 with a year-end 2019 leverage ratio of approximately 2.0 times
President and Chief Executive Officer, John Reinhart commented, “Our 2019 guidance demonstrates the strategic shift underway at Montage as we focus on financial, operational and organizational efficiencies in order to deliver value to our stakeholders. We believe the quality and depth of the Company’s inventory of locations will allow us to achieve double-digit production growth while focusing on cash flow generation in our highly economic core areas. We are excited to announce a capital program in 2019 that we expect to be predominantly funded from operating cash flow and augmented by existing liquidity while providing cash flow neutrality by the end of 2019.”
2019 Production and Capital Budget Guidance
The Company possesses a deep inventory of both liquids-rich and dry locations in the Utica Shale and Marcellus Shale that the Company believes will deliver impressive production growth and strong cash margins. First quarter and full year 2019 guidance are set forth in the table below:
The 2019 estimated capital budget range of $375 million to $400 million is based upon a two rig drilling program allocated approximately 55% to liquids-rich locations and approximately 45% to dry gas locations. Just over 90% of the capital expenditure program in 2019 has been designated to drilling and completion activity in order to maximize the return on invested capital. The Company’s 2019 development plan implements a shift in focus to reducing cycle times and improving capital efficiency in order to accelerate cash flow and achieve the highest possible returns. In order to realize these improved cash flows as well as de-risk the operational execution of its development program, the Company plans to optimize many operational parameters, including reducing its planned lateral length spuds to an average of approximately 11,700 feet and lowering its initial development pad size to approximately four initial wells per pad. In addition, the Company has seen strong production results from its first operated well in its Flat Castle area located in North Central Pennsylvania and will be assessing multiple options with respect to achieving enhanced value for that asset within the Company’s portfolio.
Net production sales volumes for 2019 are expected to be between 500 to 525 MMcfe per day with approximately 76% of 2019 production from natural gas and approximately 24% from oil and natural gas liquids. The net production profile for 2019 will be weighted toward the second half of the year due to limited completion activity during the fourth quarter of 2018 and the first quarter of 2019. In addition, a number of the wells turned to sales over the past six months were wells associated with the joint venture agreement with Sequel Energy, which is expected to be completed during the first half of 2019, therefore net production sales volumes are anticipated to accelerate during the second half of 2019 as the Company moves toward development of its higher working interest locations. The projected production profile for 2019 is significantly above the Company’s firm transportation commitments and provides multiple options regarding the Company’s allocation of development activity between liquids-rich and dry gas locations during the second half of 2019, while also allowing the Company the potential to maximize its realized natural gas price from a balanced portfolio of sales points both in-basin and out-of-basin.
With respect to cash production costs, Montage will begin delivering a portion of its NGL sales volumes to the Mariner East 2 pipeline project during the first quarter of 2019 and expects to realize an increase in its transportation costs of approximately $0.08 to $0.10 per Mcfe over historical cash production costs while also seeing an incremental increase on a per unit basis from a full year of Rover capacity utilization. The Mariner East 2 project, coupled with the higher NGL contractual price realizations related to the production sales volumes from Blue Ridge Mountain Resources, Inc., are expected to allow Montage to realize an improvement to historic NGL pricing that is incrementally positive to the Company’s NGL cash margins.
As previously announced, the Company amended and restated its revolving credit facility, increasing the borrowing base from $225 million to $375 million and extending the maturity date to 2024. In addition, the Company has reduced the letters of credit outstanding under its revolving credit facility by approximately 50% to approximately $13.5 million due to the improved credit profile of the Company. The Company believes that this increase in liquidity, combined with the anticipated significant incremental cash flow from the merger with Blue Ridge Mountain Resources, Inc., is expected to position Montage with peer-leading leverage metrics and significant financial flexibility to develop its inventory of high quality assets and position itself for future accretive strategic opportunities.
The Company has a strong hedging portfolio in place and actively manages its exposure to commodity prices through a number of commodity trading program strategies as a risk management tool to mitigate the potential negative impact on cash flows caused by price fluctuations in natural gas, NGL and oil prices. As of February 28, 2019, the Company has approximately 69% of its projected 2019 natural gas production hedged at an average floor price1 of $2.78 per MMBtu and an average ceiling price of approximately $2.99 per MMBtu. The Company has approximately 38% of its projected 2019 crude oil production hedged at an average floor price price of $52.20 per Bbl and an average ceiling price of $61.28 per Bbl.
Earnings Release and Conference Call
The Company will release fourth quarter and full year 2018 financial and operational results for the former Eclipse Resources on Tuesday, March 12, 2019 after the market close. A conference call to review the Company’s fourth quarter and full year financial and operational results is scheduled for Wednesday, March 13, 2019 at 10:00 a.m. Eastern Time. To participate in the call, please dial 877-709-8150 or 201-689-8354 for international callers and reference Montage Resources Fourth Quarter and Full Year 2018 Earnings Call. A replay of the call will be available through May 12, 2019. To access the phone replay dial 877-660-6853 or 201-612-7415 for international callers. The conference ID is 13687946. The webcast will be archived for replay on the Company’s website for six months.
The Company is pleased to announce that it will host an Analyst Day on Wednesday, March 20, 2019 at the JW Marriot Hotel in Houston, Texas. A live audio webcast of the event will begin at 9:00 am (Central) and can be accessed on the “Investors” section of the Montage Resources website at www.montageresources.com which will be launched shortly. The Company plans to post the Analyst Day Presentation to the “Investors” section of the Company’s website just prior to the event. (2)
More evidence that HQ will be in Texas–that’s where the Analyst Day will be hosted on March 20.
We’ll keep an eye on this “new” company drilling in the Marcellus/Utica.
(1) Montage Resources Corporation (Feb 28, 2019) – Eclipse Resources and Blue Ridge Mountain Resources Announce the Closing of the Strategic Combination, Borrowing Base Increase to $375 Million, Name and Ticker Change, and Completion of Reverse Stock Split
(2) Montage Resources Corporation (Feb 28, 2019) – Montage Resources Corporation Announces Initial 2019 Financial and Operating Guidance, Schedules Fourth Quarter and Full Year 2018 Earnings Release and Conference Call Date, and Provides Information on 2019 Analyst Day
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